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David J. Cord reveals something he discovered while writing his book about Nokia: it was a very strange company.

SOMETIMES, while researching my book The Decline and Fall of Nokia, I felt like a character in a Franz Kafka novel. He is known for books where the protagonist enters a disorienting, senseless world of overpowering bureaucracies. The nightmarish system is perfectly normal for those living in it, but it seems surreal to the outsider. This was Nokia.

Autonomy to autocracy

It wasn’t always this way. Throughout the 1990s Nokia was young, agile and decentralised. There was trust in the individual, and people were given an enormous amount of freedom and responsibility. Executive Pekka Ala-Pietilä said the company was like a jazz band: they improvised as they played together.

Then Nokia became successful. They beat Motorola and resisted Microsoft’s attempt to force its software onto the industry. Nokia was no longer the hungry upstart. They were the dominant force in a stable mobile device market. The major player in a stable market behaves much differently than a challenger in a dynamic, growing market. So Nokia changed.

CEO Jorma Ollila fundamentally transformed the structure of Nokia in a series of steps. In 2004 a major reorganisation introduced the matrix organisational structure. There were vertical divisions like business smartphones and feature phones, as well as horizontal units such as marketing. Autonomy was removed and control was centralised. Bureaucratisation accelerated.

Controlling costs were emphasised over value creation. Existing profit lines gained priority over potential profits. The culture, strategy and tactics of the organisation changed. The improvisational jazz band had been replaced with a strictly controlled marching band. This pervasive hierarchy and bureaucracy, this autocratic structure, were key reasons why Nokia declined and fell.

The Decline and Fall of Nokia is out now from Schildts & Söderströms.

An American journalist and author, David J. Cord has contributed to Helsinki Times as a columnist and business writer since 2007.

Forgetting the customer

Few things illustrate how Nokia’s culture changed more than what happened to their famous corporate values. In 1992 several members of the Dream Team met to formalise Nokia’s core ideals. They ended with a clear and simple list: customer satisfaction, respect for the individual, achievement and continuous learning.

Corporate values are not static, though, and when they were redefined in 2007 it was a radically different process. In 1992 six key, visionary people had defined the values; in 2007 about 10,000 people were involved. Over 6,000 employees participated in 16 meetings over two months, and thousands more participated via the company intranet.

“The whole process felt strange. It took so much effort,” the book quotes one participant. “There was a committee effect, so everything was watered down. The focus was being lost and the values became fuzzy.”

One example was what happened to the goal of “customer satisfaction.” This was replaced with “engaging you,” meaning that the company wanted to address all corporate stakeholders, not just customers. This sounds good, but it is disquieting to realise Nokia relegated the aim of satisfying their customers to a mere bullet point under a broader category.

It might seem bizarre, but Nokia increasingly turned its face away from the world, being more interested in staring into a mirror. Nokia became self-obsessed, not unlike the surreal governing bureaucracies in Kafka’s The Trial or The Castle. This was not only clear from changes in corporate values, but also from how they ran their business.

Products, not people

“At dinner one evening, I mentioned a slim phone and my eight-year-old daughter thought I was talking about a Motorola model,” recalls a former executive in the book. “I went to CEO Olli-Pekka Kallasvuo and said this is not good. My daughter associates a slim phone with Motorola. OPK said don’t worry. But I did worry. We had created affordable convergence, but we were becoming too much a product company, not focused on the consumers.”

Not only was Nokia ignoring the consumers, they fought against the big operators, those who bought their products and serviced the end users.

“Other manufacturers did exactly what the operators told them to do, but we wanted to make our own phones,” another former executive says.

It is important to realise that Nokia did, in fact, pay attention to the customer, but it was the wrong attention, brought about by how they viewed the world and their place in it. Nokia ultrasegmented the market just like a consumer products company. It acted like a Proctor & Gamble with 30 different types of toothpaste, not a participant in a dynamic, fast-changing market. When the market was stable in the early 2000s this worked well. When the great disruption began in 2007, it was a disastrous strategy.

“Inside models, not outside”

With few exceptions, Nokia was not caught off guard by changes in the mobile device industry. They foresaw the mobile Internet, third party app developers, open-source software and even touchscreens. Yet they were not able to act upon these changes which they knew were coming.

“The organisation was built to serve itself,” one former employee says in the book. “It was built to handle inside models, not outside.”

A main reason the Nokia structure was so solipsistic is because the structure was built to fix specific internal problems. In the early 1990s Nokia was in the midst of a civil war fought between owners and management. Chairman of the board Casimir Ehrnrooth and new CEO Ollila were able to fix the problem, but needed a more autocratic system to do so.

Additionally, in the mid-1990s the company went through a severe logistics crisis as a result of fast growth and inefficient processes and structures. Pertti Korhonen earned the title “The Man Who Saved Nokia” by solving these problems, but the cost was a more bureaucratic system with rigid planning procedures.

Finally, in the early 2000s the mobile device market stagnated, and when it began to grow again it was at a much slower rate. Nokia began to ultrasegment their market and focus on many different product lines. It worked marvellously, and this problem was fixed, too. But again: there was a cost to pay. This was a fine strategy in a stable environment where innovations were mostly incremental. But when there was a massive disruption it was deadly. It was like a consumer products company focusing upon their 30 types of toothpaste suddenly having to react to a new invention which rendered toothpaste obsolete.

“It is disquieting to realise Nokia relegated the aim of satisfying their customers to a mere bullet point under a broader category.”

Implementation Department

Employees nicknamed their headquarters the Power Point Palace. The grim joke shows that employees realised how much time they were wasting in meetings. Others did not simply make jokes about it; they found ways to measure it.

“In the early 2000s I spent 90 per cent of my time doing my job and about 10 per cent on necessary bureaucracy,” a former employee in research and development says in The Decline and Fall of Nokia. “By 2005-2010 my time was split about equally, 50-50. In some weeks, if I attended every meeting I was supposed to it was 100 per cent bureaucracy.”

A Nokia scientist says that he was once berated by his superior for missing a meeting. He thought he had a good excuse, because he had been trying to file a patent for the company. His boss didn’t agree. To this particular manager, at least, it was more important to attend meetings than to strengthen the company’s intellectual property rights.

To be fair, many employees were well aware of this problem. Anssi Vanjoki, who narrowly missed out on becoming CEO on two occasions, was particularly annoyed at spending so much time in unproductive endeavours. His protest was simple: he plastered a sign on the door of his office which read: “Implementation Department.” Vanjoki, for one, was more interested in implementing Nokia’s strategy than talking about it in meetings.

Fat and inert

Nokia had become fat, both figuratively and literally. It was like a once great athlete who was now so out of shape that he became out of breath by climbing a flight of stairs. An enormous amount of energy was expended in keeping the corporate entity alive, instead of being used on innovating products and services.

Former smartphone executive Jonas Geust explains in the book: “The culture had changed. The way of working had become stiff. When we released the N95 it took a huge push, an enormous effort to push our boundaries and capabilities. It took massive resources to move the organisation, and we saw it start to crack.”

The N95, released in early 2007, was a fantastic device. Its successor the N96 came out a year later and was lacklustre. The next smart device, the N97, was a disaster. It was released in the middle of 2009 to heavy criticism. Over a period of a few years Nokia had become progressively worse at bringing a good experience to the customer.

It was the worst timing imaginable. Nokia had slowly and gradually built a massive, rigid internal structure and inertia had set in. Simultaneously, Apple and Google began a massive disruption. The old mobile phone market was superseded by an entirely new market. Nokia had set itself in concrete right as the hurricane began. It needed to be as supple as a willow branch to bend before the winds, but it was instead stiff and brittle.

The answer: more bureaucracy

Nokia had always been willing to reorganise itself. From the outside, a casual observer might have believed the company was being nimble and proactive to take advantage of new opportunities. In actuality these frequent reorganisations often just made matters worse.

One of the best examples of a botched reorganisation was the Solutions unit. By the middle of 2009 Nokia executives were well aware of the disruption happening in the mobile device industry, and they wanted a new structure to better enable them to compete in their new world.

The organisation already used the matrix structure, with both vertical and horizontal business divisions. This required co-management, because any given employee could have two bosses (or even more). Solutions put a third element into the corporate structure, so that it was now three-dimensional. Product divisions were vertical, support units were horizontal, and now Solutions added depth.

Nokia had chosen to react to revolutionary changes not by reducing bureaucracy and returning autonomy to individuals and teams, but by doing the exact opposite. Once power has been grasped there is a tendency to hold it, no matter what.

Key events in Nokia’s evolution

Early 1990s: Infighting amongst owners and senior executives forces new CEO Jorma Ollila and chairman Casimir Ehrnrooth to build a more autocratic structure. 1995-1996: A severe logistics crisis results in structures and processes which are more centrally controlled and planned. 2004: The matrix organisational structure is implemented. The central office becomes larger and merges with Nokia Mobile Phones. Nokia Ventures, the company’s attempt to be nimble and find new opportunities, is abandoned. 2009: The Solutions unit tries to create a three-dimensional organisational structure. It is discarded the next year.

“Things exist in a certain way”

All of this is easy to see in hindsight, but even during those years it was clear to many people that Nokia had become stuck in their own surreal world, determined to do things their way. A hint of this comes from Nokia Advisor David A. Stewart’s interview with the New York Times. His job was to help executive Tero Ojanperä move Nokia into content and entertainment, but he carefully told about the problem he experienced.

“We disagree on the speed of things,” Stewart said. “I’m trying to force it faster, and he, quite wisely, understands he’s in a world where things exist in a certain way. Tero’s thinking is that he’s going to change the way things work and it’s going to be better. But it takes time.”

This insistence about a “world where things exist in a certain way” will be familiar to anyone who has read Franz Kafka. It is impossible to speed things up, because the powerful machine insisted things be performed in their all-important bureaucratic way. Any other way was inconceivable. And, just like in a Kafka novel, it all ended badly.